Yesterday, the EC Court of Justice (ECJ) handed down its long awaited judgment in the Syfait II Case (Joined Cases C-468/06 - C-478/06, Sot. Lélos kai Sia), which deals with stock management in the pharmaceutical sector.

Background

In the context of a stock management system introduced by GSK's Greek subsidiary, the issue at stake in said judgment was whether, under the prohibition of the abuse of a dominant position (Article 82 EC), a pharmaceuticals company occupying a dominant position on the national market for certain medicinal products can apply a stock management system.

(In its earlier judgment in the Syfait I Case, the ECJ had failed to answer the same question because it had declared that question inadmissible for technical reasons, as the Greek Competition Authority which first referred that question was not a national court within the meaning of Article 234 EC, the provision on preliminary references from national courts to the ECJ. See ECJ 31 May 2005 Case C-53/03 Syfait and Others [2005] ECR I-4609).

Summary

The main question to be answered in this context is whether a refusal to supply a wholesaler in order to counter parallel exports can be justified by the fact that pharmaceutical companies must be able to protect themselves against the consequences of the control exercised by Member States over the selling prices or the reimbursement of medicines (points 51 and 58).

The ECJ observes that, even though medicine price regulation by the State does not entirely remove the prices of pharmaceutical products from the law of supply and demand and therefore cannot by itself preclude the competition rules from applying (points 61-66), these rules are "incapable of being interpreted in such a way that, in order to defend its own commercial interests, the only choice left for a pharmaceutical company in a dominant position is not to place its medicines on the market at all in a Member State where the prices of those products are set at a relatively low level" (points 67-68).

It follows that, even though medicine price regulation cannot prevent the refusal to meet wholesaler orders from constituting an abuse, "it is none the less permissible for [a pharmaceutical] company to counter in a reasonable and proportionate way the threat to its own commercial interests potentially posed by the activities of a [wholesaler] which wishes to be supplied […] with significant quantities of products that are essentially destined for parallel export" (points 69 and 71).

A pharmaceutical company must therefore be able to protect itself against orders that are out of the ordinary in terms of quantity (points 70 and 76). This must be assessed in the light of both (i) the previous business relations between the pharmaceuticals company and the wholesalers concerned and (ii) the size of the orders in relation to domestic demand (point 73).

An order thus could be out of the ordinary if certain wholesalers order medicines in quantities which are out of all proportion to those previously sold by the same wholesalers to meet domestic demand (point 76).

The ECJ concludes that an undertaking occupying a dominant position on the relevant market for medicinal products which, in order to put a stop to parallel exports, refuses to meet ordinary orders is abusing its dominant position (operative part, emphasis added).

Preliminary assessment

The judgment is useful in that it sets out that a dominant pharmaceutical company may apply a stock management system under which it refuses to meet orders that are out of the ordinary in terms of quantity, in light of (i) previous volumes supplied to the wholesaler in question and (ii) that wholesaler's share of domestic supply.

The judgment also raises a series of new questions, such as whether a pharmaceutical company can refuse an order which is out of the ordinary in terms of share of domestic supply but which is not out of ordinary in terms of previous volumes supplied to the wholesaler in question, whether the pharmaceutical company must apply a safety margin, and what the relevance is of the rules set down by the French Conseil de la Concurrence in an earlier French stock management case.